SEIS & EIS Loss Relief: A guide for founders and investors

Whilst investing in early-stage companies is an exciting prospect with great upside potential, it also carries risk. 

Risk-to-capital is one of the key components of qualifying businesses for the Seed Enterprise Investment Scheme (SEIS), and the Enterprise Investment Scheme (EIS), and it’s largely this risk that is the reason for the generous tax incentives provided within the schemes. 

The upfront tax relief tends to be the one that steals the headlines, but there is a safety net that sits quietly behind: loss relief.

If an SEIS or EIS investment doesn’t go to plan, investors can claim back a decent portion of their loss - and for founders, understanding how this works can help you to communicate the full value of your raise to investors.

This guide aims to break down how SEIS and EIS loss relief works, how to claim it, and the difference between the two schemes, and what investors can claim back.

What is loss relief?

Loss relief is a tax incentive that allows investors to reduce the financial impact if their investment incurs a loss as their shares fall in value or become worthless. 

If a company in an investor’s SEIS or EIS portfolio shuts down, is sold as a loss, or enters a ’zombie state’, investors can offset their loss against either: 

• Their income tax, or
• Their capital gains tax (CGT) bill

This makes both SEIS and EIS more attractive to investors, as it particularly negates the risks associated with early-stage investing.

SEIS loss relief: How it works

SEIS loss relief occurs when:

• An investor sells their SEIS shares for less than they paid, or
• The shares become negligible in value

Investors can then offset their effective loss (i.e., the amount invested minus the 50% tax income relief) against income tax or CGT.

When SEIS loss relief can be triggered?

1. Company acquisition at a loss

If the company is acquired and the shares are sold below their original value (and the investor has held them for the three-year qualifying period), they can claim loss relief.

2. Voluntary liquidation

If a company winds down operations for a genuine commercial reason, the disposal is treated as a ‘deemed disposal.’ If shares become worthless, investors can claim loss relief - though HMRC may withdraw some income tax relief if the shares were held for less than three years.

3. ‘Zombie company’ scenario

This is where a company remains active, but isn’t profitable or growing, so the shares are effectively worthless. In this instance, investors can submit a negligible value claim. If HMRC accepts this, they can claim loss relief as if the shares had been disposed of.

EIS loss relief: How similar is it?

Loss relief also applies to EIS investments, and in almost exactly the same way as SEIS. Investors can offset losses against income tax or CGT, but the effective loss is calculated after subtracting the 30% income tax relief already obtained.

The differences between SEIS and EIS loss relief

SEIS and EIS loss relief operates using the same mechanism, but the results vary due to the difference in tax relief available.

For SEIS: 

• 50% tax relief on the initial investment
• Loss relief applies to the remaining 50%

For EIS:

• 30% tax relief on the initial investment
• Loss relief on the remaining 70%

How to claim SEIS or EIS loss relief

Claiming against income tax

Investors can: 

• Adjust their PAYE tax code for the current tax year, or
• Claim via self-assessment using the SA108 (capital gains summary) for a previous year.

The deadline for claiming against income tax is 12 months from the 31 January following the tax year of the loss.

Claiming against CGT

If it’s claimed as a capital loss, the loss amount will be deducted from their chargeable gains before CGT for the current tax year. Any excess can be carried forward indefinitely until it is offset against the next available gain.

Investors have 4 years to claim this, starting from the end of the tax year that saw the loss occur.

Worked examples: SEIS and EIS compared

SEIS example:

Chris invests £100k in an SEIS eligible startup.

• 50% tax relief on the initial investment = £50,000
• Company fails, and shares become worthless
• Total effective loss = £50,000

If Chris is a higher-rate taxpayer (at 40%):

• Income tax loss relief = £20,000
• Total tax relief received = £50,000 + £20,000 = £70,000
• Net cost of a £100,000 investment = £30,000

*If Chris chose to claim CGT loss relief, this would be at 24% for a higher-rate taxpayer, and would recover £12,000, bringing the total relief received to £62,000.

EIS example:

Alisha invests £300k in an EIS eligible business.

• 30% tax relief on the initial investment = £90,000
• The company is acquired at a loss, and she sells her shares for £180,000
• Total effective loss = £300,000 - £90,000 - £180,000 = £30,000

If Alisha is a higher-rate taxpayer (at 40%):

• Income tax loss relief = £12,000
• Total tax relief received = £90,000 + £12,000 = £102,000

Net cost of a £300,000 investment (post-sale) = £18,000

To summarise

SEIS and EIS offer some of the most powerful investor protections out there - and loss relief is a vital part of that toolkit. 

Whether you’re investing at the earliest idea stage under SEIS or backing a business further along under EIS, the combination of upfront tax relief and the ability to offset losses significantly reduces your exposure if things don’t go to plan.

Choose Vestd

Vestd gives both founders and investors a clearer, smarter way to manage ownership. 

Investors can: 

• Get real-time portfolio insight and total ownership clarity, powered by live Companies House data.
• Verify and validate every shareholding to ensure your stake is accurate and up to date.
• Model company valuations and future scenarios to forecast potential payouts across your portfolio.
• Create SPVs for Syndicates, Pledge Funds or Managed Funds, all managed in one place.

Book a call with the team to discover how Vestd can help to manage your ownership, the smart way.